Notable Performance of Factors in the Two Sigma Factor Lens
- Several of the equity style factors had a notable month in August:
- The outperformance of Momentum relative to Value continued over from July.
- The Low Risk factor posted strong performance that was supported entirely by its Beta component (which is designed to be long stocks with relatively low market betas and short the opposite).
- Uncertainty around core issues like trade and global growth sent Equity markets lower. It also affected several other macro factors:
- Emerging Markets underperformed, as slowing growth throughout emerging Asia and the trade war between the U.S. and China (with this month's declining yuan) had knock-on effects for key commodity suppliers and other trading partners worldwide. Investors probably did not welcome the additional reminder of EM risk as Argentina announced that it would extend the maturity on billions of dollars of government debt and delay repayments to the IMF.1
- Amid this tumult, global bond yields continued to decrease in August, lifting the Interest Rates factor, which is made up of global government 7-10 year bonds. In the U.S., bond prices for Treasuries generally increased more than inflation-linked bonds, putting negative pressure on the Local Inflation factor.
- Finally, while the Commodities factor ended the month with fairly benign performance, intra-month activity was more exciting. Oil prices suffered early in the month when Trump announced tariffs on previously untouched Chinese imports. Oil subsequently recovered some of those losses on easing trade tensions (e.g., the U.S. announced an extension of certain tariffs beyond the original September 1 deadline) and expectations of further production cuts. Meanwhile, gold positively affected the Commodities factor, as it delivered strong gains in August.2
Visit Venn to analyze your organization’s portfolio and investment exposures to these factors.
1 Sources for Emerging Markets bullet:
Financial Times article "Emerging market assets across Asia show effects of gathering gloom" on August 28, 2019.
Press release from the U.S. Department of the Treasury on August 5, 2019.
Reuters article "Emerging market currencies to bounce back from trade war jitters: Reuters poll" on August 8, 2019.
Bloomberg article "Argentina Seeks to Extend Maturity of $101 Billion of Debt" on August 28, 2019.
2 Sources for Commodities bullet:
Forbes article "Trump's China Trade War Hammering Oil Markets" on August 6, 2019.
Wall Street Journal article "Oil Rebounds From Near 2019 Lows" on August 8, 2019.
Reuters article "Oil rises more than 2% on firm yuan, expectations of more OPEC cuts" on August 7, 2019.
Median and percentile measures the performance of each factor in the Two Sigma Factor Lens relative to the entire history of the factor in USD, using monthly data for the period January 2003 - August 2019.
Click here for Important Disclosure and Disclaimer Information.
This article is not an endorsement by Two Sigma Investor Solutions, LP or any of its affiliates (collectively, “Two Sigma”) of the topics discussed. The views expressed above reflect those of the authors and are not necessarily the views of Two Sigma. This article (i) is only for informational and educational purposes, (ii) is not intended to provide, and should not be relied upon, for investment, accounting, legal or tax advice, and (iii) is not a recommendation as to any portfolio, allocation, strategy or investment. This article is not an offer to sell or the solicitation of an offer to buy any securities or other instruments. This article is current as of the date of issuance (or any earlier date as referenced herein) and is subject to change without notice. The analytics or other services available on Venn change frequently and the content of this article should be expected to become outdated and less accurate over time. Two Sigma has no obligation to update the article nor does Two Sigma make any express or implied warranties or representations as to its completeness or accuracy. This material uses some trademarks owned by entities other than Two Sigma purely for identification and comment as fair nominative use. That use does not imply any association with or endorsement of the other company by Two Sigma, or vice versa. See the end of the document for other important disclaimers and disclosures. Click here for other important disclaimers and disclosures.